National Income — Set 2

Correct Answer: D. Net Factor Income from Abroad

NFIA represents the difference between income earned by residents from abroad and income earned by non-residents within the domestic country. It is the key component that distinguishes GDP from GNP. A positive NFIA increases the national income relative to domestic production.

Correct Answer: A. Double Counting

The Value Added Method avoids double counting by only considering the value added at each stage of production. It ensures that the value of intermediate goods is not added multiple times in the final calculation. This maintains the accuracy of the total output value.

Correct Answer: C. Base year prices

Real GDP is calculated using the prices of a specific base year to eliminate the distortions caused by inflation. It reflects the actual physical volume of goods and services produced. It is considered a better indicator of economic progress than nominal GDP.

Correct Answer: C. Price inflation

The GDP Deflator is a ratio that shows the level of change in prices of all new, domestically produced, final goods and services. It is calculated by dividing Nominal GDP by Real GDP and multiplying by 100. It provides a much broader measure of inflation than CPI or WPI.

Correct Answer: A. Either prices or production increase

Nominal GDP is calculated at current market prices, so it rises if the volume of production goes up or if prices rise. Because it includes price changes, it may give a false sense of growth during high inflation. Real GDP is preferred for tracking actual economic expansion.

Correct Answer: A. Total population of the country

Per Capita Income is the average income earned per person in a given area in a specified year. It is calculated by dividing the total national income by the total population. It serves as a rough indicator of the standard of living.

Correct Answer: A. Machine installed in a factory

The correct answer is 'Machine installed in a factory'. Capital goods are tangible assets that an organization uses to produce goods or services for other businesses or consumers. They do not get exhausted immediately in the production process and are subject to depreciation. They are essential for increasing the future productive capacity of the economy.

Correct Answer: B. Income Method

In the Income Method, 'Mixed Income' refers to the earnings of self-employed individuals where it is difficult to distinguish between wages, rent, and profit. This category covers small shopkeepers, farmers, and individual practitioners. It ensures that all types of factor incomes are captured in the total.

Correct Answer: A. Flour used by a baker to make bread

Intermediate goods are those used as inputs in the production of other goods or for resale in the same year. Their value is not counted separately in national income to avoid double counting. The value of these goods is already included in the final product's price.

Correct Answer: D. Depreciation

The difference between Gross Domestic Product (GDP) and Net Domestic Product (NDP) is the value of depreciation. GDP counts the total output, while NDP accounts for the consumption of fixed capital. Thus, NDP provides a more realistic measure of sustainable production.